Introduction
Personal finance is a very vital subject that needs to be treated with caution and prudence. The future of you and your family depends on the financial decisions you take today. While managing finances and investing your money you should keep in mind your short and long term financial goals; like education of children, buying residential property and retirement planning. Your portfolio should be diversified and it should have an optimal mix of debt and equity investments. The financial experts are of the opinion that this will ensure safety as well as growth of your money. However, like majority of the investors you may also feel at loss when it comes to the right Stock picks.
Misconceptions vs. reality
If you are new to the stock market and stock trading then chances is that you have some preconceived notions which may not be entirely correct. You have seen the veterans in the stock market or at least have heard about them from your friends or read about them in the newspaper. You have heard of success stories, one day wonder and believe that these fortunate people have mastered the art of stock picks. But the reality is that there is no guaranteed method or magic formula for the perfect stock picks.
There are so many factors affecting the financial health of a company that there is no so-called correct formula to predict the success of a company in future. Also the human element of intuition is involved in the process of stock picks.
However, that does not mean you cannot create wealth for yourself through stock trading. Do not let the initial set back and failure to pick the right stocks dampen your spirit and create fear. The only way to go about it is through trial and error and continuously educating yourself on the company information.
Is it worth?
You may ask whether all the risks are worth taking and why bother about the right stock picks. Sure you have your fixed income instruments to invest and get guaranteed results. But the only instrument that can give you steady growth and growth beyond inflation is the stocks. Consider if you had bought Microsoft IPO in mid eighties. It would have given you nearly 35000% return in 2004. So in just 18 years or so $10,000 would rocket to a whopping $3.5 million.
Is not the search for the next Microsoft or Apple worth it?
Fundamental Theories
While picking up a stock it is very important to study and make your own judgment about the company’s fundamentals. Spend some energy and time to study the fundamentals of a company to find the intrinsic value of the company. It reflects the true worth of the company vis-à-vis the price at which the stock is traded in the market place. Any company is worth the summation of its discounted cash flow. To put it simply it is the future profits summed together as received today.
If the intrinsic value of a company stock is greater than its market price then it is a good buy as its price is likely to increase in the future.
